Mark Knoff-Thomas reflects on the impact of Covid-19 on the commercial property rental market and the ability of certain owners and tenants to adapt and work together on finding solutions.
It may be a sign of the times that large clusters of ‘For Lease’ stickers indicate a local economy in distress; however, it may not fully reflect what is happening in the area. Whilst there is no denying the impact of COVID-19 on store closures, to place the blame entirely on the pandemic is a surface level argument. The ability for not only tenants, but for property owners to adapt during the pandemic, has become a major factor in facilitating or thwarting the survival of many local businesses.
This year, we have seen the majority of property owners in our precinct act in good faith, taking extensive measures to support tenants and establish rent relief schemes. Compassionate rent relief measures have created business-saving opportunities for business owners to continue operating during these unprecedented and challenging times. Some of these have included heavily discounted rent, the waiving of ongoing operating expenditure (OPEX) costs, as well as rent holidays.
“Unfortunately, the small number of landlords who aren’t open to revised financial arrangements are contributing to the number of long-term vacancies in town centres.”
As the supply and demand equation has changed, savvy landlords have realised this and have been able to reap the benefits. But there are a small number of property owners who just haven’t “got it” and are still demonstrating an unwillingness to negotiate with tenants – with almost a blatant refusal to accept the reality of the times. For example, we have one landlord who owns eight empty stores on Broadway, but we also have multi-site property owners who don’t have any vacancies, despite the fact they have had some tenancies turnover. Unfortunately, the small number of landlords who aren’t open to revised financial arrangements are contributing to the number of long-term vacancies in town centres.
Impact on surrounding business
Additionally, untenanted spaces can have detrimental impacts on neighbouring stores and the overall customer experience in town centres. Because it can be perceived as an indicator for local economic decline, this can lead to decreased foot traffic or unfavourable buying behaviour. Abandoned buildings or vacant sites can also pave the way for increased crime, vandalism and anti-social behaviour.
The success of many businesses can be attributed to the environment in which they operate in. It makes a huge difference when businesses in the same area align well with one another to create a vibrant atmosphere. An example of this is the selection of stores in Osborne Lane in Newmarket. Once upon a time Osborne Lane wasn’t a thing, but over the past six years has created a name for itself as a swanky shopping location and is home to some of the best art, homewares, eateries and fashion retailers in New Zealand. This was no mistake. The landlord had a vision to create one of the trendiest shopping destinations and then made strategic decisions to bring that to life. Ultimately, this reinforces what the collective spirit of town centres and like-minded individuals can achieve.
On the flipside, tenants also have a responsibility to make sure the area is the right fit for them, before taking over leases. I am often surprised by the amount of ‘transactional’ leasing still taking place, whereby tenants are putting little thought into the demographic make-up of the area, what channels they plan to target customers through, and how they will create a strong presence in the community. This can cause a downward spiral of short-term leases and failed business ventures.
The future and shared spaces
With Australia rolling out guidelines on a mandatory code of conduct for commercial rent relief, there has been a lot of lobbying to our own Government for something similar in New Zealand. Whilst I don’t believe that we should be too prescriptive when it comes to the decisions that property owners make, I do think that having guidelines (or best practice recommendations) would certainly help. These guidelines could assist in combatting vacancy issues and mitigating the effects of ‘short-termism’.
As flexible working days are becoming increasingly common in light of the pandemic, we may also see a wave of shared working spaces and the demand for places such as Qb Studios (a collection of independent workspaces) to rise. Although early days, it is plausible that decentralised multi-brand hot-desking environments could create an opportunity for businesses, as it will lower the rate of vacancies and help to minimise expenses for businesses which aren’t being used to their full capacity.
Despite the handful of vacancies, things are tracking well and there’s certainly grounds for optimism as we look to 2021. With the festive season fast approaching, retailers remain in high spirits – and despite the absence of international visitors, we have seen some great trading. Retailers continue to show up to work with a steadfast determination to thrive once again – all in all, I’m feeling relatively bullish in the lead up to Christmas.
For all the uncertainty this pandemic has brought, it has shed a light on our ability to support each other during difficult times. Let’s all get out and about to help maintain the beating heart of our town centres.
Mark Knoff-Thomas is CEO of the Newmarket Business Association.
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